The head of one of the nation's largest home builders made headlines early this year by bucking his industry peers' projections of a housing turnaround by spring and instead predicting the market would "suck, all 12 months of the calendar year."

Boy, did he get it right. The housing market has gone from a "correction" to a "slump," and as 2007 comes to a close, there are signs 2008 will get worse.

Experts are predicting an uglier year as inventories of unsold homes grow and a large number of adjustable-rate mortgages reset, sending more homeowners scrambling to make higher payments and pressuring the already shaky credit markets. What worries industry watchers the most, however, is the possibility that the housing troubles will plunge the economy into a recession.

"I think everyone is expecting the other shoe to fall. There's still some blood to be let," said Jim Gaines, a research economist at The Real Estate Center at Texas A&M University. "And historically, a downturn in the housing market has been a leading indicator of a recession."

The housing slump stands to exact a sizable toll on the broader economy as jobs, retail spending and credit availability could likely take a hit.

During the peak of housing from January 2003 to March 2006, the housing market helped to create 1.3 million jobs. Since then, 500,000 of those have been lost.

Unlike downturns in some sectors, a slowdown in housing can affect jobs across many industries, from financial services to construction to home furnishing retailers, said John Challenger, chief executive of Challenger, Gray and Christmas Inc.

Solid job and wage growth continues to support retail spending even as slipping home prices discourage homeowners from tapping equity for big-ticket purchases. But experts worry homeowners will become tighter with their wallets and save more as they watch their total household worth — of which homes make up 39 percent — decline.

Consumer spending makes up two-thirds of the U.S. economy, and already is showing signs of slowing down. According to the International Council of Shopping Centers, same-store sales grew by 2.2 percent from February to October, compared with 3.6 percent last year and 3.9 percent in 2005. Consumer confidence also has faltered and is near two-year lows.

"Everyone agrees that the rapid rise in home prices led to increase in spending relative to incomes," said Thomas Lawler, a former official at mortgage lender Fannie Mae who is now a private housing and finance consultant. "The question is what will the impact be on spending if equity falls?"

Moody's and Banc of America Securities forecast home prices will tumble 15 percent from peak to bottom, accounting for nonprice discounts such as upgraded kitchens or new swimming pools. Some worst-case scenarios don't have home prices picking up until as late as 2012. Prices this year have dropped between 0.4 percent to 5.7 percent nationwide, depending on the measure.

LOTS OF UNSOLD HOMES

Adding more pressure to pricing is the ballooning supply of unsold homes, even as builders curb new construction. Right now, inventories are at the highest levels since the post-World War II period and surging foreclosures from resetting interest rates on certain mortgages will contribute more supply.

Defaults and foreclosures have skyrocketed this year as subprime borrowers struggled with too-high payments and resetting interest rates. Banc of America Securities estimates that $361 billion in subprime loans are scheduled to reset next year, and falling home prices and tighter lending standards will keep these borrowers from refinancing into more manageable loans.

The dismal performance of these loans has clobbered Wall Street, which has reined in the capital it invests in the credit markets. Investors buy mortgage-backed securities from lenders, who, in turn, use that money to fund new home loans. Without investor capital, mortgage originations will stay low, costing lenders millions of dollars in business.

Meanwhile, assets backed by home loans are rapidly falling in value as foreclosures rise. Financial institutions that hold these assets are taking larger-than-expected hits as they write down their values. So far this year, foreign and U.S. financial institutions racked up an unexpected $100 billion in credit-related charges.

"We need to stop having so many negative surprises about the balance sheets of large financial institutions. It just heightens people's anxiety about what will happen next," said Doug Elmendorf, an economist at the Brookings Institution.

Yet, bigger write-downs are expected. Goldman Sachs expects more than $100 billion in bank write-offs on the horizon, while Moody's estimates a total loss of $275 billion to investors.

"Under some dark scenarios, these write-downs could spook investors and revive the turmoil in the credit markets, resulting in a broader credit squeeze," said Mark Zandi, chief economist at Moody's www.Economy.com. "This is likely if a commercial bank took a major write-down that resulted in its insolvency or put it very close."

Lenders and home builders also are at risk of bankruptcy if market conditions worsen. This year saw the demise of dozens of subprime lenders, while the credit squeeze punished the remaining mortgage lenders. At the same time, the large, national home builders booked record losses, while smaller, private builders shuttered their operations.

HELP FROM GOVERNMENT

The federal government has stepped in, mostly symbolically, to restore sanity in the marketplace. Last week, the Bush administration along with lenders, investors and consumer advocates unveiled a voluntary plan to extend lower, introductory interest rates on home loans before they reset at higher levels to qualifying borrowers.

Many experts believe the plan's requirements are too narrow and won't help enough homeowners. Home builders and lenders are calling for more government measures like the temporary expansions of Fannie Mae and Freddie Mac's funding capacity as well as another cut in a key interest rate from the Federal Reserve.

Low interest rates also help to depress the dollar's value, which could keep the economy above water while it weathers the housing downturn, Elmendorf said. Ever since the dollar hit lows against several major currencies, the trade balance has improved as foreigners snap up cheaper American goods. If that continues, it would be a powerful balance against the housing slump, he said.

Amid the predictions, sellers are sitting on the sidelines, hoping 2008 will bring more traffic, while potential home buyers try to time the bottom of the market.

Cliff and Erika Stice of Castle Rock, Colo., have had their 2-year-old stucco and stone ranch home on and off the market since February 2006. They've had 30 showings, just a handful of repeat lookers and no offers, despite cutting the price to $1.255 million from $1.35 million.

"We really thought we would sell the house fairly quickly," said Cliff Stice, 66, a retired telecommunications and cable executive.

Fortunately, the Stices are in no rush to sell.

"Our Realtors think 2008 is going to be much better than 2007. If people are less scared to make a commitment, then the market will start taking off again," Stice said. "Until then, it's not a bad place to hang out."

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